- What do you do when you expect a tsunami of funny ‘Monopoly’ money flooding into your country? The Illuminists will use it to buy up your country. It will cause your currency to rise in value suddenly. Asset prices will hyper-inflate and will collapse when the flood of funny money is withdrawn. Interest rates will fluctuate wildly, collapsing to zero then rising to 10+% in a matter of days. This is the reason capital controls barriers are being lifted up. The USD funny money financial world war is about to begin. All fiat currencies are heading towards toilet paper status. Got GOLD yet?
Asia stiffens resolve to resist capital inflows
Thailand slapped a tax on foreign investment in government debt on Tuesday, Japan said it could intervene anew to weaken the yen and China again talked down the prospects of a faster rise in the yuan.
After the failure of a weekend International Monetary Fund meeting to defuse escalating forex tensions, Asian governments are redoubling efforts to resist capital inflows that are boosting their currencies and undercutting the competitiveness of their exporters. Thailand’s cabinet agreed to impose a 15 percent withholding tax on capital gains and interest income from foreign investment in government debt in a bid to curb the baht, which is at its highest since the 1997 Asian financial crisis.
With the dollar hovering near 15-year lows against the yen, Japan said it would wade into the foreign exchange market again if need be, despite widespread disapproval by its peers of a bout of dollar buying last month.
And the People’s Bank of China applied the brakes to the yuan by setting a weaker midpoint reference rate for the day’s trading, while its foreign exchange arm said currency reform did not equate to yuan appreciation. China’s insistence that the yuan’s rise must be gradual is a huge obstacle to the appreciation in Asian exchange rates policymakers say is needed to reduce global imbalances.
It, and other countries, counter that the prospect of the Federal Reserve printing money again will flood the world economy with more liquidity, weaken the dollar and push emerging currencies yet higher as investors search for returns with interest rates in the developed world at record lows.
A second round of quantitative easing by the U.S. central bank would pile more pressure on an already languishing dollar. Britain too could embark on a second round of asset buying with new money although a Bank of England policymaker said he and his colleagues faced competing risks of not doing enough to curb inflation versus tightening policy too soon.
The announcement by Thailand came a week after Brazil doubled a tax on foreign portfolio inflows into bonds and some other financial instruments to 4 percent to reduce upward pressure on the real, its currency. The baht has risen 11 percent this year, the second strongest currency in Asia after the yen, pushed up in part by foreign inflows into Thai assets.
Japanese Finance Minister Yoshihiko Noda said he had explained to a weekend meeting of the Group of Seven industrial countries in Washington that Tokyo had intervened on September 15 to prevent destabilizing lurches in exchange rates. “The G7 reaffirmed that excessive currency moves would hurt stability in the economy and in the financial system … From this standpoint we will take decisive steps, including intervention, when needed,” Noda told a news conference.
With many governments acting against currency appreciation, fears are mounting of a “race to the bottom” that may trigger protectionist trade tariffs that would hobble global growth. A top Chinese newspaper acknowledged the risk of a conflict. “The financial crisis could escalate into a currency crisis,” the China Securities Journal said in a front-page editorial. “There will be no winner.
The U.S. House of Representatives has already passed a bill that would authorize retaliation against China for holding down the value of the yuan. U.S. Treasury Secretary Timothy Geithner is due to determine by October 15 whether China is “manipulating” its currency to gain an unfair trade advantage.
REFORM DOES NOT EQUAL APPRECIATION
Political pressure on China will mount ahead of a summit in Seoul on November 11-12 of the Group of 20 major economies. G20 finance ministers gather in South Korea on October 22-23 to prepare the ground after a largely fruitless flurry of exchanges at the weekend during the International Monetary Fund’s meeting.
The China Securities Journal said efforts by the United States and Japan to weaken their currencies would generate considerable pressure for a rise in the yuan. But, far from advocating faster appreciation to help dampen price pressures, the paper said Beijing would have to control the yuan’s rate of climb and refrain from raising interest rates in order to ward off inflows of speculative capital.
“Currency reform does not equate to yuan appreciation. The emphasis is more on the improvement of the currency formation mechanism,” the State Administration of Foreign Exchange, an arm of the central bank, said in a report.
The Folly of Competitive Currency Devaluations! What Didn’t Happen at The Just-Concluded IMF Meeting!
- Competitive devaluations will escalate. The race to the bottom for all fiat currencies is a certainty. Because China refuses to agree to a sharp appreciation of the CNY, its currency will follow the USD down the debasement alley. The rest of the Asian Tigers: South Korea, Taiwan, HK, Singapore, Thailand… will follow the path of devaluation. Japan has indicated they will do the same. Otherwise, how can these countries compete with China?
- The Euro will also follow the same route via massive QE. The UK pound is a worthless currency. What we are seeing is the demise of all major fiat currencies. Smart money has started fleeing fiat currencies into commodities and precious metals. They understand what a global currency war means. The current financial, economic and monetary order is coming to a calamitous end. It will lead to conflict and set the stage for a world war! Got GOLD yet?
The Folly of Competitive Currency Devaluations
….none quite so important as the news of what didn’t happen at the just-concluded IMF annual meeting in Washington, and what’s not on the agenda for the upcoming G-20 meeting in South Korea. What didn’t happen, and what isn’t on the agenda at the confabs, is any sort of discussion of a broad new monetary arrangement that puts a stake of gold through the heart of the hopelessly broken fiat system that now holds sway.
And the stake doesn’t have to be made of gold – just as long as it’s something tangible and firmly anchors political promises to fiscal realities. But that conversation hasn’t even begun.
Instead, in the same way that the world’s money is backed by nothing, the world’s central bankers confuse policy with speechifying of the sort that is considered a success if it strikes a sufficiently authoritative note when quoted in the financial press… but that is actually devoid of any real substance.
What you just read pretty much sums up the entirety of the current thinking of the administration’s top man on the topic of how the world avoids a competitive currency collapse. In other words, when it comes to realistic, actionable ideas, the administration’s got nothing… nada… zilch.
And they are far from alone – this cognitive void is apparent in the brainless bluster of central bankers the world over. What this means to you, and this is serious, is that unless and until you read that a special gathering of officialdom is to be held in some woody resort for the purpose of remaking global monetary standards – or that the Chinese or some other sizable economy is breaking ranks and going it alone with monetary reform that involves ditching the fiat system in favor of one backed by gold – then you have to expect that the race to the basement for currencies will continue.
Which is to say, though gold and other tangibles will get overbought, followed by necessary price corrections, during the period just ahead, the overall upward bias will remain intact until events on the ground finally bring the politicians and their cronies to their knees, and then their senses.
Unfortunately, it won’t be officialdom that pays the price for the ill effects of the race to the bottom that will continue until that point, but rather the public at large, and especially the savers and pensioners who will feel the steady erosion of financial bulwarks they’ve built against the indignities of an impoverished old age. Ironically, the entire idea of a race to the bottom makes no sense from a policy perspective.
- We are in the early phases of a world currency war. This will lead to protectionism, capital controls and even war. Although, I do agree that the CNY is undervalued by 30-50%, to label China as a currency manipulator is counterproductive for America. As many as 25 countries, in the past few weeks, have directly intervened in the forex market to weaken their currencies. America, via QE, is manipulating its currency lower and flooding the world with cheap money.
- When QE 2.0 starts, trillions of dollars will flow into emerging markets causing havoc. Illuminist corporations will use these funny money to buy up foreign assets. This large capital inflow into countries will cause inflation. The indirect consequence of this is that, the locals fearing asset price inflation will flee their local currencies and buy up hard assets. Ultimately, the Illuminists win because they are exchanging pieces of toilet paper for foreign hard assets. This is financial world war!
World Faces New Wave of Currency Wars
An American bill imposing punitive tariffs on countries that undervalue their currencies is set to unleash a new trade war between the US and China. But in fact the whole global currency system is in a state of jeopardy. As confidence in the dollar drops, private investors are putting their faith in gold. By SPIEGEL Staff.
At first glance, the new bill sounds perfectly innocuous. “H. R. 2378 — Currency Reform for Fair Trade Act” was on the agenda of the US House of Representatives late last Wednesday afternoon. Fair trade — who could object to that? But as the representatives started debating, it didn’t sound harmless anymore. In fact, it sounded like war.
There was one verbal attack right after the other, for roughly an hour. Speaker after speaker condemned the alleged “currency manipulators” from China who supposedly subsidize their products by keeping their currency artificially low. They all want to see H. R. 2378 passed into law.
A closer look at the fine print also reveals that the draft legislation is far from harmless. The bill calls for the US Department of Commerce to start imposing — even without approval by US President Barack Obama — punitive tariffs on certain countries. The initiative specifically targets countries that have “a fundamentally undervalued currency,” “persistent global current account surpluses” and very large currency reserves — in other words, China.
The bill passed the House by a vote of 348 to 79. “This is a stronger message than any previous one,” says Nicholas Lardy from the Peterson Institute for International Economics.
The trade conflict between Beijing and Washington has thus entered a new, acute phase. One month before the high-stakes mid-term congressional elections, America’s representatives, alarmed by nearly 10 percent unemployment and a gloomy economic outlook, have rediscovered an old friend: protectionism.
At the same time, they have pointed the finger once again at their favorite enemy: China. They are demanding that China finally adjust its currency so that Chinese products are no longer much cheaper than those manufactured by its US competitors. Things are heating up in the conflict between the US and China: verbally, legally and politically. The economic power of the 20th century wants to cut the 21st century’s economic giant down to size. The question is whether it is even still strong enough to do so — and whether such a conflict won’t end up harming everyone.
For a long time, the US economy has been dependent on cheap products made by the Chinese and on their currency reserves that bolster the value of the dollar. Until now, both sides have benefited from this system. One side lived beyond its means and paid with printed pieces of paper called dollars, the other side used this paper to purchase US government bonds, allowing it to accumulate huge currency reserves.
But things can’t continue like this forever. Imbalances in world trade are growing increasingly large, and the global currency system is getting out of control.
There is, however, also a fair amount of hypocrisy behind the latest American initiative. Nobody has controlled the currency markets as much as the US has in the past. The US Federal Reserve still continues to print dollars to finance skyrocketing government debt. The fact that this erodes the value of the US currency is something that the Americans seem not to care about. Of course, this makes imports into the US more expensive, but it also makes American exports cheaper and enhances the competitiveness of US companies.
Ultimately, though, exchange rates reflect the interconnectedness of today’s world. When one side wins, the other loses, and vice versa. Recently, the euro suddenly rose, even though only a few months ago the financial world was speculating over the decline of the European common currency — and the problems of the euro-zone countries have by no means been solved. The European Central Bank under President Jean-Claude Trichet is still purchasing government bonds from ailing euro countries to help maintain their value.
Nonetheless, risk premiums for Irish government bonds soared to new heights last week as the cost of bailing out the country’s troubled banks rose to a massive €45 billion. In a number of euro-zone countries, tens of thousands have taken to the streets to protest planned austerity measures, giving rise to doubts over whether the proposed restructuring of state finances in these countries will actually succeed. That would normally be enough to drag down the euro — if the economic outlook in the US weren’t even gloomier.
Japan is also facing major difficulties. The economy still hasn’t managed to recover, and the country continues to suffer from deflation and enormous government debt. Normally, all of this would pull down the value of the Japanese currency, but the exchange rate of the yen to the dollar is also rising because the Chinese, out of fear that the US currency will continue to fall, are increasingly investing their currency reserves in yen as well.
Nothing is as it should be on the global currency markets. It seems as if the world has been turned upside down — and has become very dangerous. Indeed, for better or for worse, the well-being of entire countries depend on the value of these currencies, meaning that instability on the currency markets also threatens the structure of the global economy.
If the exchange rates are manipulated, imbalances increase and problems become more marked — until they ultimately escalate. That would threaten to spark a currency crisis that could bring down entire economies.
Sucked into the Maelstrom
By itself, no country or currency zone could escape the maelstrom of such a crisis, as all countries are interconnected via their exchange rates. This is partly what makes it so dangerous when a country devalues its currency to boost its economy. If one side secures such a competitive advantage for itself, it automatically puts the other side at a disadvantage. If the other side reacts with a devaluation, this triggers a downward spiral where everyone is the loser. …
Brazilian Finance Minister Guido Mantega is already talking about an international currency war. “The advanced countries are seeking to devalue their currencies,” Mantega said in a speech last week. “This threatens us because it takes away our competitiveness.” Brazil intends to resist a looming revaluation of its currency. Earlier, Japan massively intervened on the currency market.
Switzerland also sees itself as a victim of the weak euro and dollar. A great deal of capital is flowing into the country, threatening the competitiveness of the alpine nation’s export industry. Time and again over the past few months, the Swiss central bank has purchased euros in an attempt to clip the wings of the soaring Swiss franc.